The Times story lays out a fairly elaborate plan for a deal; it certainly would be interesting to know where they heard it. Here’s the proposal they laid out:

The new Yahoo management team would be lead by Jonathan Miller, the former CEO at AOL, and Ross Levinsohn, a former president of Fox Interactive Media. Both men have been speculated – by Kara, among others – to be possible replacements for outgoing Yahoo CEO Jerry Yang.

Microsoft would provide Yahoo a “$5 billion facility,” with another $5 billion to come from external investors.

The cash would be used to buy convertible preferred shares and warrants which would give the investors 30% of the company.

The investors would get 3 of 11 board seats.

Microsoft would get a 10-year operating agreement to manage Yahoo search.

Microsoft would get a two-year option to buy the search business for $20 billion. Yahoo would keep its e-mail, messaging and content operations.

The deal would boost Yahoo’s “income,” which I presume means revenue, by as much as $2 billion a year.

“Senior directors,” which I assume is Brit-speak for executives, “at Microsoft and Yahoo are understood to have agreed the broad terms of a deal, but there is no guarantee that it will succeed.”

Kara’s response:

Levinsohn’s on the record response is that the Times report is “total fiction.” He said this was the first time he’d actually heard of the plan the Times laid out.

Sources at both Microsoft and Yahoo “scoff at such a deal now taking place or that either side has been in any such discussions of late.”

I would also point out that Yahoo’s entire market cap as of Friday’s close was $16 billion; does it make sense to think Microsoft would pay $20 billion for the Yahoo search business alone? And if you assume that the $5 billion Microsoft investment would get them 15% of the company, then you have to believe that the entire company is worth $33 billion, or twice Friday’s closing price.

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There are 3 comments

DECEMBER 1, 2008 2:02 A.M.

Jill wrote:

Sounds like a stupid investment if it were true. The market cap of $16B is the first place I looked, as this all seemed way out of credibility.

DECEMBER 1, 2008 1:57 P.M.

Anonymous wrote:

Despite me wanting to believe these rumors, 16B market cap shows how NOT credible this story is. Sentiment became bullish this week (http://predictwallstreet.com/forecast.aspx?symbol=GOOG) so obviously investors are feeling optimistic about YHOO finally, but I think this has more to do with YHOO finding a new CEO. Investors remain cautious but are hopeful for a turnaround.

DECEMBER 5, 2008 12:14 P.M.

Michael Murdock wrote:

People are toying with Yahoo. What should happen is Yahoo should get serious and look over my plan at http://www.docmurdock.com/yahoo.htm and hire me to replace Yang and get the company moving in a new direction, with a new vision, new plan and new passion.

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Tech Trader Daily is a blog on technology investing written by Barron’s veteran Tiernan Ray. The blog provides news, analysis and original reporting on events important to investors in software, hardware, the Internet, telecommunications and related fields. Comments and tips can be sent to: techtraderdaily@barrons.com.